Question

Question 1

What benefits does a company stand to gain for listing on the Ghana Stock Exchange?
Explain why many companies are not listed in spite of the potential benefits stated above.

Question 2
You have been appointed the portfolio manager of a GHS 1.5 billion pension fund recently established. The fund is required to maintain 40% of its portfolio in Stock Exchange listed financial stocks.
a) Select two financial sector stocks in your proposal to the fund’s board of trustees. Justify your selection using at least one-year market information.
b) A member of the board of trustees has argued for the use of a stock index in the exercise.
i. State and describe an index on the local bourse that you would use for this purpose.
ii. Assess the use of market indices in portfolio management.

Answer 1

1.Following are some benefits that company will attain from listing on the Ghana Stock Exchange

i)An immediate benefit enjoyed by a newly listed company is the considerable improvement in overall financial position.The injection of substantial equity funds for example greatly improves the company's balance sheet.With such capital injection,the company will be able to improve its financial position.

ii)Creating a market for the company's share.

iii)Easy access to long term and new capital:Listing on stock exchange enable the company to raise a long term capital by issuing securities to the public.Going public provides access to various individuals who in aggregate have a significant amount of funds to invest.

iv)Transferability of shares:After listing on stock exchange,shares of company are freely transferable from one investor to another.

Companies are not listed in spite of the potential benefits due to the following

i)While there are benefits of listing on stock exchange,it also means additional obligations and reporting requirements on the companies and its directors.

ii)High set-up costs:Listing costs can be cosiderable when joining the market and you will have to pay ongoing cost such as Professional Fees

iii)Shareholder Interest:People that invest in your company will become shareholders and they have  interest in how your business is run and you will have to consider their interest while running your business.Shareholder interests may be different from your own objective and in some cases this can lead to conflict.